Why the IMF Resilience and Sustainability Trust is not a silver bullet for Covid-19 recovery and the fight against climate change


Intended by the IMF as a means to redistribute rich countries’ unused Special Drawing Rights (SDRs), the current design of the Resilience and Sustainability Trust indicates that it is far from a magic bullet. Instead, it may reproduce the inequalities of the current system and award the IMF additional powers outside of its mandate.

Since its explosion, the Covid-19 pandemic has made the inadequacy of the global multilateral system more evident than ever, most notably in ensuring vaccine access to all and in responding to the debt crisis. Despite many calls for a reform of the system, these have so far been inconclusive.  

In 2021, the IMF finally agreed and implemented a new allocation of US$650 billion worth of Special Drawing Rights, but only a third (about US$251 billion) went to low and middle income countries. This new SDR allocation is yet to have an impact at scale due to the lack of adequate mechanisms to channel the additional liquidity created to developed countries.

In recognition of this gap, the IMF announced in October last year the creation of the Resilience and Sustainability Trust (RST), which will be funded by rich countries’ unused SDRs. The trust will provide concessional loans to low- and middle-income countries for long-term structural reform, especially in the areas of climate action and health. The RST design should be finalised by the upcoming Spring Meetings in April and it is expected to be implemented by the Annual Meetings in the Autumn.

Despite its presentation as a key innovation of the international financial architecture, the RST is far from a silver bullet for fixing the Covid-19 recovery and the climate crisis. In fact, it may instead reproduce the dysfunctionalities and inequalities of the system, including attributing additional power to the IMF in areas outside its mandate, such as climate action. 

The RST and the controversial use of policy conditionality

In September 2021, 280 CSOs laid out six core principles that should guide the design of mechanisms for fair and transparent SDR channelling. These include eligibility criteria, additionality, the provision of debt-free transfers and to refrain from tying SDR channelling to policy conditionality. Conditionality has a long history of harming the poorest, increasing inequality, compromising gender equality and women’s rights and undermining human rights, especially those requiring fiscal consolidation measures. They are the cornerstone of a model of bringing about change that rests on neo-colonial power dynamics, with international institutions in the global north continuing to occupy developing countries’ policy space.

Far from having ‘gone soft on conditionality’ and ‘turned into an aid agency’, as former IMF Chief Economist Kenneth Rogoff recently argued, the IMF has continued throughout the pandemic to encourage the adoption of austerity measures once the crisis subsides and, in some cases, such as Brazil and South Africa, as early as 2021.

However what we know so far about the new trust suggests that the conditionality-free principle will be violated. Conditionality is considered indispensable to get countries on the ‘right reform path’, to ensure transparency and accountability in the management of resources, to maintain the reserve nature of SDRs and as a guarantee against credit risk. A related worrying feature still under discussion is that only countries with existing IMF programs would be eligible for the trust.

The RST has several problematic aspects deserving of further scrutiny in the coming weeks. Yet conditionality is the characteristic that will more directly determine whether the RST will turn into an instrument of undue influence on countries’ policy space. Despite reassurances that it will be designed respecting the principle of country ownership, the RST, with its focus on structural reforms, climate change and pandemic preparedness, will further widen the scope of IMF conditionality and of its interference in countries’ policy making. Alarmingly, this will happen in policy areas where the IMF lacks expertise and where country ownership and citizen participation are critical for building a social contract, tackling inequality and ensuring a smooth ecological transition.

Of particular concern is what ‘green conditionality’, or conditionality in the area of climate change, might entail. Even though climate change issues have been long-recognised by the IMF management as being ‘macro-critical’, a strategy paper on climate change was only published in July 2021. Different pieces of research looking at IMF’s country policy advice and technical assistance on climate change have found that this has often supported fossil fuel infrastructure and the promotion of energy sector reforms that are poorly aligned with just energy transition principles, overlooking and therefore deepening transitions risks.

World Bank, conditionality, climate change and healthcare: an example not to follow

The IMF plans to make up for its limited expertise on climate change and health in the design of RST programs by increasing collaboration with the World Bank (WB). However, the IMF’s record of collaborating with other international institutions in the design of conditionality has been unsatisfactory, as recently noted by the IMF Independent Evaluation Office.

At the same time, it is doubtful that the WB is the model to follow in the design of green conditionality and more generally to provide meaningful advice on climate change and healthcare. Analysis of conditionality used in Development Policy Financing (DPF), the WB’s budget support financing instrument, has shown this is characterised by a contradictory approach to dealing with fossil fuels (promoting phasing out with one hand and incentivising investment with the other). In fact, the WB has been recently accused to be ‘missing in action’ on climate. As shown by recent Eurodad research, conditionality have been used in post-Covid-19 DPF to continue pushing a private finance-first blueprint that undermines the role of the state in the provision of public services, including healthcare, and is ill-suited to bring about a just, feminist and green transition.

RST design can still be improved

Preventing this undue influence and turning the RST into a true innovation of the international financial architecture will require a different approach to conditionality. Notably, the use of economic policy conditionality, particularly those focused on fiscal consolidation and on enhancing the role of the private sector in public services delivery, should be avoided.

At a minimum, the IMF should adopt a ‘do no harm’ approach in the design of RST programmes, relying on systematic use of ex-ante impact assessments to prevent suggested reforms from negatively impacting on human rights, gender and economic inequality. The IMF usually argues that these medium-term objectives cannot be accounted for in loan programmes because the latter are meant to tackle short-term imbalances in the balance of payment and in a country’s finance. This argument cannot be applied to the RST, which is designed for developmental impact. Programmes should be designed with the explicit aim of supporting countries to achieve the Sustainable Development Goals and meeting their Nationally Determined Contributions under the Paris Climate Agreement.

It is also imperative that RST programmes are designed relying on meaningful consultation with a wide range of stakeholders, including civil society organisations, trade unions and women’s rights organisations.

As the Executive Board proceeds to finalise the design of the RST in the coming weeks and months, there is still time for them to develop creative solutions to ensure that civil society’s principles for fair and transparent SDR channelling are implemented.

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  • Mary Stokes
    published this page in Blog 2022-01-13 12:44:12 +0100